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Informist, Friday, May 22, 2026

 

--Fin min sources on RBI surplus: Too early to assume fiscal slippage FY27

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – The finance ministry is not yet overly worried about a potential fiscal slippage in 2026-27 (Apr-Mar) after the fairly conservative surplus transfer from the Reserve Bank of India, top officials said Friday. Even at record high, the RBI board-approved surplus transfer of INR 2.87 trillion for FY26 was just about in line with Budget estimates. The government, which is staring at a massive hole in its Budget on account of lower tax collections and possibly higher expenditure, would have benefited if the central bank transferred a higher-than-accounted surplus. 

 

"One has to strike a balance between the desire for higher transfers and risk-proofing of RBI," an official who attended the meeting told Informist. The RBI's central board Friday approved the surplus transfer for FY26 which was also on the lower end of the market expectations. 

 

The Budget has pegged the fiscal deficit for FY27 at 4.3% of GDP, but the government now sees it at 4.5% of GDP, following a downward revision in the size of GDP for earlier years under the new series of data. In absolute terms, the government has projected FY27 fiscal deficit at INR 16.96 trillion. 

 

According to economists, the fiscal deficit may overshoot the Budget estimate by up to 40 basis points. "As compared to the Budget Estimates, the fiscal deficit is expected to remain under pressure owing to expectations of higher fertiliser and fuel subsidy requirements, and lower tax collections and OMC (oil marketing companies') dividends," Aditi Nayar, Chief Economist, ICRA Ltd., said in a note. She expects fiscal slippage of 40 bps this year. 

 

"It is too early to say that," the second finance ministry official said. "Let us wait for more data," the first official added.

 

The Budget had projected the surplus transfer from the RBI and dividends from public sector banks and financial institutions at INR 3.16 trillion, up 3.7% from the revised estimate of INR 3.05 trillion for FY26. The central bank transfers the surplus to the government in May of the subsequent year. The RBI's surplus transfer depends on the Contingent Risk Buffer it sets aside, ranging from 4.5-7.5%. For FY26, the RBI kept the risk buffer at 6.5%.

 

The central bank's board is made up of 15 nominees, including Governor Sanjay Malhotra and his four deputies. Department of Economic Affairs Secretary Anuradha Thakur and Department of Financial Services Secretary M. Nagaraju are also part of the RBI's board. The other members on the central board of directors include former deputy comptroller and auditor general of government accounts Revathy Iyer and Mahindra group Chairman Anand Mahindra.

 

The surplus transfer was in line with the budget estimates but a higher-than-budgeted transfer would have provided additional support to the government to limit the fiscal slippage. "The RBI dividend transfer is broadly in line with the FY27 Union Budget estimate, implying no meaningful upside surprise to the already stretched fiscal arithmetic," Madhavi Arora, Chief Economist of Emkay Global Financial Services Ltd., said in a report. 

 

While the war in West Asia has led to worries of a slower economic growth and a fall in direct and indirect tax collections, the finance ministry may also have to spend more money to support the economy through higher subsidies. The Strait of Hormuz has been shut for more than two months because of the war and this has pushed up global crude oil prices by 60%. India's oil import bill is expected to rise sharply since it imports over 85% of its domestic crude oil needs.

 

The government will likely face a net revenue shortfall of nearly INR 2.5 trillion due to a shortfall in direct and indirect tax collections this year. It is already facing a revenue hit of INR 1.65 trillion from the cut in excise duty on petrol and diesel. Additionally, if the pace of direct tax collection growth moderates to 5% in FY27, the same as FY26, the shortfall would be over INR 2.4 trillion.

 

In sum, these point to a revenue shortfall of INR 4 trillion. Since the Centre shares around 35% of total taxes with the states, the net impact of the revenue shortfall on the Centre's Budget is likely to be over INR 2.5 trillion. On other hand, expenditure is also likely to increase by at least INR 2 trillion on account of higher fertiliser and petroleum subsidies.

While the officials did not specify what levers the government will depend on to control its fiscal deficit from shooting up, it has a few options. "Some mitigating factors could help partially absorb the pressure, including drawdowns from the economic stabilisation fund (INR 1 trillion), rationalisation of non-core capex (INR 350 billion), and cuts in non-core revenue expenditure (INR 450 billion)," Arora said. Even after accounting for these offsets, she expects a fiscal slippage of at least 0.2% of GDP, assuming no shortfall in divestment proceeds or other revenue streams.

 

The government has set up the Economic Stabilisation Fund to meet expenditure arising from uncertain geopolitical conditions. A top finance ministry official had told Informist in April that this fund would provide room for the government to control the fiscal deficit in FY27. "There may be a case where the government will have to respond further if the war persists for a long time, and there will be a cost to it," the official had said. "Because of the fund, we will be able to stick to the target," the official added.  End

 

US$1 = INR 95.69

 

Edited by Akul Nishant Akhoury

 

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